The head of the European Central Bank (ECB) said Tuesday that rising energy prices and supply chain disruptions will be transitory.

"We should not overreact" to those frictions as monetary policy cannot directly affect those phenomena, Christine Lagarde said at the 25th anniversary of Wirtschaftsinitiative – a business initiative that gathers entrepreneurial leaders. "But we will pay close attention to wage developments and inflation expectations to ensure that inflation expectations are anchored at 2%."

She acknowledged that it is hard to predict exactly how long disruptions will last.

Thanks to its fiscal and monetary policies, the EU is seeing a very fast economic recovery rather than a slow and painful one, she said. "We are going through the steepest bounce-back in growth in the euro area since 1975."

The ECB expects back at pre-pandemic levels before the end of this year, she added.

40% of EU funds to be spent on green transition, digitalization

Europe is on the road to recovery, she said, but the coronavirus pandemic has led to shifts in the global environment and within our economies.

Citing that the EU now has an ideal tool in place to support the transition toward sectors and activities of the future, she said, "around 40% of European funds will be spent on investing in the green transition and 20% on digitalization."

And these funds will only be disbursed in return for growth-enhancing reforms approved by the European Commission, she added.

Lagarde also praised EU's efforts in transitioning to a greener economy, saying, "In many areas, Europe is doing well."

She said European companies are among frontrunners and nine of the top 20 global players developing green-digital patents are European.

"The EU is the world’s largest green finance market, with around 60% of all senior unsecured green bonds issued here in 2020," she said.

This can be a stepping stone for achieving a fully-fledged capital markets union that could act as a catalyst for the overall structural transformation of Europe, she said./aa